Third Quarter 2021 Summary

• Net income of $90.1 million, or $0.95 per diluted share
• Total revenue increased to $199.2 million, compared with $187.7 million in the prior quarter
• Return on average assets of 1.73%, return on average equity of 12.67%, and return on average tangible common equity of 19.89%⁽¹⁾
• Pre-provision net revenue (“PPNR”) on average assets of 1.98%, annualized, and efficiency ratio of 47.5%⁽¹⁾
• Loan and deposit growth of 11.5% and 10.7%, annualized, respectively
• Net interest margin of 3.51%, compared with 3.44% in the prior quarter
• Cost of deposits of 0.06% in the third quarter compared with 0.08% in the prior quarter
• Tangible book value per diluted share increased to $19.75, compared with $19.38 at prior quarter⁽¹⁾

Pacific Premier Bancorp, Inc. (NASDAQ: PPBI) (the “Company” or “Pacific Premier”), the holding company of Pacific Premier Bank (the “Bank”), reported net income of $90.1 million, or $0.95 per diluted share, for the third quarter of 2021, compared with net income of $96.3 million, or $1.01 per diluted share, for the second quarter of 2021, and net income of $66.6 million, or $0.70 per diluted share, for the third quarter of 2020.

For the quarter ended September 30, 2021, the Company’s return on average assets (“ROAA”) was 1.73%, return on average equity (“ROAE”) was 12.67%, and return on average tangible common equity (“ROATCE”) was 19.89%, compared to 1.90%, 14.02%, and 22.45%, respectively, for the second quarter of 2021 and 1.31%, 9.90%, and 16.44%, respectively, for the third quarter of 2020. Total assets were $21.01 billion at September 30, 2021, compared to $20.53 billion at June 30, 2021, and $19.84 billion at September 30, 2020. A reconciliation of the non-U.S. generally accepted accounting principles (“GAAP”) measure of ROATCE to the GAAP measure of ROAE is set forth at the end of this press release.

Steven R. Gardner, Chairman, President, and Chief Executive Officer of the Company, commented, “Our teams continue to drive positive results and deliver a high level of profitability, which we have done consistently over time and throughout varying economic cycles. While the resurgence of COVID-19 cases slowed the pace of the economic recovery during the third quarter, our dynamic business development capabilities coupled with our proprietary technology enabled us to generate high quality loan and deposit growth, increase revenue, and achieve higher positive operating leverage. These efforts further improved our core earnings power.

“The experience and expertise we have built across the organization provides consistently strong loan production and inflows of low-cost deposits. During the third quarter, we generated $1.46 billion in new loan commitments, resulting in 11.5% annualized loan growth and a favorable mix shift in earning assets. Combined with the positive impact of eliminating higher cost funding sources, these efforts led to net interest income growth of 20.2%, annualized, and net interest margin expansion during the third quarter.

“Our new business pipelines remain healthy, which we anticipate contributing to solid organic growth and strong financial performance, while also remaining well positioned to take advantage of strategic growth opportunities that create long-term value for our shareholders and further enhance our franchise,” said Mr. Gardner.

FINANCIAL HIGHLIGHTS

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

Net interest income totaled $169.1 million in the third quarter of 2021, an increase of $8.1 million, or 5.1%, from the second quarter of 2021. The increase in net interest income reflected higher average interest-earning assets, higher loan fees, one more day of interest, and a lower cost of funds as compared to the prior quarter, partially offset by lower average investment and loan yields.

The net interest margin for the third quarter of 2021 was 3.51%, compared with 3.44% in the prior quarter. Our core net interest margin, which excludes the impact of $9.4 million loan accretion income, compared to $9.5 million in the prior quarter, certificates of deposit mark-to-market amortization, and other adjustments, increased 8 basis points to 3.30%, reflecting lower cost of funds and higher loan fees, partially offset by lower average investment and loan yields.

Net interest income for the third quarter of 2021 increased $2.5 million, or 1.5%, compared to the third quarter of 2020. The increase was attributable to lower cost of funds, a $1.52 billion increase in average investment securities, and a $377.5 million decrease in average interest-bearing liabilities, which primarily resulted from the redemptions of subordinated debentures, partially offset by lower average interest-earning assets yields and lower average loan balances.

Provision for Credit Losses

For the third quarter of 2021, the Company recorded a $19.7 million provision recapture, compared to a $38.5 million provision recapture for the second quarter of 2021, and a $4.2 million provision expense for the third quarter of 2020. The provision recapture for the third quarter of 2021 was comprised of a $19.5 million provision recapture for loan losses, a $194,000 provision recapture for unfunded commitments, and $11,000 provision expense for held-to-maturity securities that were transferred from available-for-sale during the third quarter. The provision recaptures for loans and unfunded commitments during the third quarter of 2021 were reflective of improving economic forecasts employed in the Company’s current expected credit losses (“CECL”) model relative to prior periods and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment. The provision expense in the third quarter of 2020 reflected the impact of changes in economic forecasts related to the COVID-19 pandemic.

Noninterest Income

Noninterest income for the third quarter of 2021 was $30.1 million, an increase of $3.4 million from the second quarter of 2021. The increase was primarily due to a $3.5 million increase in trust custodial account fees and a $987,000 increase in earnings on bank-owned life insurance ("BOLI"), partially offset by a $895,000 decrease in net gain from sales of investment securities. Also, other income included a $970,000 net gain on debt extinguishment compared to a $647,000 loss in the prior quarter, partially offset by $1.1 million lower CRA investment income and $483,000 lower Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loan referral fees.

During the third quarter of 2021, the Bank sold $12.0 million of SBA loans for a net gain of $1.2 million, compared to the sales of $14.7 million of SBA loans for a net gain of $1.5 million in the second quarter of 2021.

Additionally, during the third quarter of 2021, the Bank sold $161.6 million of investment securities for a net gain of $4.2 million, compared to the sales of $280.2 million of investment securities for a net gain of $5.1 million in the second quarter of 2021.

Noninterest income for the third quarter of 2021 increased $3.3 million, or 12.5%, compared to the third quarter of 2020. The increase was primarily due to a $4.5 million increase in trust custodial account fees, a $3.0 million increase in net gain from sales of investment securities, a $1.9 million increase in other income, and a $996,000 increase in earnings on BOLI, partially offset by a $8.4 million decrease in net gain from sales of loans.

The net gain from sales of loans for the third quarter of 2021 decreased from the same period last year reflecting lower net gain from the sales of $12.0 million of SBA loans for a net gain of $1.2 million, compared with the sales of $1.16 billion SBA PPP loans for a net gain of $19.0 million in the third quarter of 2020, offset by sales of $96.2 million of other loans for a net loss of $9.4 million during the third quarter of 2020.

Noninterest Expense

Noninterest expense totaled $96.0 million for the third quarter of 2021, an increase of $1.5 million compared to the second quarter of 2021, primarily driven by a $531,000 increase in data processing expense and a $518,000 increase in marketing expense.

Noninterest expense decreased by $2.5 million compared to the third quarter of 2020. The decrease was primarily due to $3.0 million of merger-related expense for the third quarter of 2020 relating to the Opus Bank acquisition. Excluding merger-related expense, noninterest expense increased $449,000 compared to the third quarter of 2020, primarily due to a $2.6 million increase in compensation and benefits, offset by a $1.3 million decrease in office expense.

Income Tax

For the third quarter of 2021, our income tax expense totaled $32.8 million, resulting in an effective tax rate of 26.7%, compared with income tax expense of $35.3 million and an effective tax rate of 26.8% for the second quarter of 2021, and income tax expense of $23.9 million and an effective tax rate of 26.5% for the third quarter of 2020. Based on our actual and projected level of earnings for 2021, our estimated effective tax rate for the full year is expected to be in the range of 26 to 27%.

BALANCE SHEET HIGHLIGHTS

Loans

Loans held for investment totaled $13.98 billion at September 30, 2021, an increase of $388.3 million, or 2.9%, from June 30, 2021, and an increase of $532.0 million, or 4.0%, from September 30, 2020. The increase from June 30, 2021 was primarily driven by loan fundings, slightly higher line utilization rates, and lower prepayments and maturities. The increase in loans held for investment from September 30, 2020 was primarily driven by higher loan production, partially offset by loan amortizations, prepayments, and maturities, as well as loan sales.

During the third quarter of 2021, the Bank generated $1.46 billion of loan commitments and funded $1.10 billion of new loans, compared with $1.58 billion in loan commitments and $1.15 billion in funded loans for the second quarter of 2021, and $360.0 million in loan commitments and $280.8 million in funded loans for the third quarter of 2020. Business line commitments totaled $2.75 billion with an average utilization rate of 33.12% for the third quarter of 2021, compared with business line commitments of $2.59 billion with an average utilization rate of 31.96% for the second quarter of 2021, and business line commitments of $2.11 billion with an average utilization rate of 36.37% for the third quarter of 2020.

At September 30, 2021, the ratio of loans held for investment to total deposits was 80.0%, compared with 79.9% and 82.4% at June 30, 2021 and September 30, 2020, respectively.

The following table presents the primary loan roll-forward activities for total loans, including both loans held for investment and loans held for sale, during the quarters indicated:

The following table presents the composition of the loan portfolio as of the dates indicated:

The total end-of-period weighted average interest rate on loans, excluding fees and discounts, at September 30, 2021 was 4.03%, compared to 4.11% at June 30, 2021, and 4.34% at September 30, 2020. The quarter-over-quarter and year-over-year decreases reflect the continued impact from prepayments of higher rate loans and lower rates on new originations.

The following table presents the composition of loan commitments originated during the quarters indicated:

The weighted average interest rate on new loan commitments was 3.66% in the third quarter of 2021, compared with 3.59% in the second quarter of 2021, and 3.61%, in the third quarter of 2020.

Asset Quality and Allowance for Credit Losses

At September 30, 2021, our allowance for credit losses (“ACL”) on loans held for investment was $211.5 million, a decrease of $21.3 million from June 30, 2021, and a decrease of $71.0 million from September 30, 2020. The provision for credit loss recapture during the current quarter was reflective of improving economic forecasts employed in the Company's CECL model relative to the prior quarter and the favorable asset quality profile of the loan portfolio, partially offset by an increase in loans held for investment during the quarter. The decrease from September 30, 2020 was primarily due to changes in economic forecasts employed in the Company's CECL model related to the COVID-19 pandemic.

During the third quarter of 2021, the Company incurred $1.8 million of net charge-offs, compared to $1.1 million and $4.5 million during the second quarter of 2021 and the third quarter of 2020, respectively.

The following table provides the allocation of the ACL for loans held for investment as well as the activity in the ACL attributed to various segments in the loan portfolio as of and for the period indicated:

The ratio of allowance for credit losses to loans held for investment at September 30, 2021 was 1.51%, compared to 1.71% at June 30, 2021 and 2.10% at September 30, 2020. The fair value net discount on loans acquired through total bank acquisitions was $85.0 million, or 0.60% of total loans held for investment, as of September 30, 2021, compared to $94.4 million, or 0.69% of total loans held for investment, as of June 30, 2021, and $126.3 million, or 0.93% of total loans held for investment, as of September 30, 2020.

Nonperforming assets totaled $35.1 million, or 0.17% of total assets, at September 30, 2021, compared with $34.4 million, or 0.17% of total assets, at June 30, 2021, and $27.5 million, or 0.14% of total assets, at September 30, 2020. Total loan delinquencies were $20.2 million, or 0.14% of loans held for investment, at September 30, 2021, compared to $19.3 million, or 0.14% of loans held for investment, at June 30, 2021, and $29.4 million, or 0.22% of loans held for investment, at September 30, 2020.

Classified loans totaled $124.5 million, or 0.89% of loans held for investment, at September 30, 2021, compared with $131.4 million, or 0.97% of loans held for investment, at June 30, 2021, and $136.7 million, or 1.02% of loans held for investment, at September 30, 2020. The quarter-over-quarter and year-over-year decrease was primarily driven by the net changes in risk ratings.

Interest is not typically accrued on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. There were no loans 90 days or more past due and still accruing interest at September 30, 2021. There were six troubled debt restructured loans belonging to two borrower relationships totaling $17.6 million at September 30, 2021, compared to $17.8 million troubled debt restructured loans comprised of the same six loans to the two borrower relationships reported at June 30, 2021, and no troubled debt restructured loans at September 30, 2020.

At September 30, 2021, there were no COVID-19 loan modifications remaining within their modification period and no loans were in-process for potential modification. At June 30, 2021, there was one residential loan for $819,000 classified as a COVID-19 modification under Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") and no loans were in-process for potential modification.

Investment Securities

During the third quarter of 2021, the Company transferred $157.6 million of municipal bonds from available-for-sale to held-to-maturity at fair value. At September 30, 2021, investment securities available-for-sale were $4.71 billion and investment securities held-to-maturity were $170.6 million. In total, investment securities were $4.88 billion at September 30, 2021, an increase of $374.0 million from June 30, 2021, and an increase of $1.25 billion from September 30, 2020. The increase in the third quarter of 2021 compared to the prior quarter was primarily the result of $735.3 million in purchases, partially offset by $161.6 million in sales and $167.3 million in principal payments, amortization, and redemptions, a $32.4 million decrease in mark-to-market fair value adjustment, and an $11,000 ACL on held-to-maturity securities. The Company’s assessment of available-for-sale investment securities indicated that no ACL was required as of September 30, 2021.

The increase in investment securities from September 30, 2020 was primarily the result of $2.72 billion in purchases, partially offset by $819.7 million in sales, $586.3 million in principal payments, amortization, and redemptions, a $59.3 million decrease in mark-to-market fair value adjustment, and an $11,000 ACL on held-to-maturity securities.

Deposits

At September 30, 2021, deposits totaled $17.47 billion, an increase of $454.9 million, or 2.7%, from June 30, 2021, and an increase of $1.14 billion, or 7.0%, from September 30, 2020. At September 30, 2021, non-maturity deposits totaled $16.36 billion, or 93.6% of total deposits, an increase of $601.5 million, or 3.8%, from June 30, 2021, and an increase of $1.74 billion, or 11.9%, from September 30, 2020. During the third quarter of 2021, deposit increases included $374.6 million in interest-bearing checking deposits, $153.9 million in money market and savings deposits, and $73.1 million in noninterest-bearing deposits, primarily driven by an increase in business deposit account balances, partially offset by a decrease of $146.6 million in retail certificates of deposits, as compared to the second quarter of 2021.

The weighted average cost of deposits for the third quarter of 2021 was 0.06%, compared to 0.08% for the second quarter of 2021, and 0.20% for the third quarter of 2020, including the favorable impact of the acquired certificates of deposit mark-to-market amortization of 0.01%, 0.02%, and 0.07%, respectively. The decrease in the weighted average cost of deposits in the third quarter of 2021 compared to the prior quarters was driven by lower pricing as well as deposit mix.

The end of period weighted average rate of deposits at September 30, 2021 was 0.04%.

Borrowings

At September 30, 2021, total borrowings amounted to $480.4 million, an increase of $3.8 million from June 30, 2021, and a decrease of $62.0 million from September 30, 2020. Total borrowings at September 30, 2021 were comprised of $150.0 of Federal Home Loan Bank of San Francisco (“FHLB”) advances and $330.4 million of subordinated debt. The increase in borrowings at September 30, 2021 as compared to June 30, 2021 was primarily due to an increase of $150.0 million in FHLB advances, offset by redemptions of $135.0 million in subordinated notes and $10.4 million in junior subordinated debt securities with an aggregate net book value totaling $146.4 million. The decrease in borrowings at September 30, 2021 as compared to September 30, 2020 was primarily due to the redemption of $160.0 million in subordinated notes and $10.4 million junior subordinated debt securities, offset by an increase of $109.0 million in FHLB advances.

Capital Ratios

At September 30, 2021, our common stockholder's equity was $2.84 billion, or 13.51% of total assets, compared with $2.81 billion, or 13.70%, at June 30, 2021, and $2.69 billion, or 13.55%, at September 30, 2020, with a book value per share of $30.08, compared with $29.72 at June 30, 2021, and $28.48 at September 30, 2020. At September 30, 2021, our ratio of tangible common equity to total assets was 9.30%, compared with 9.38% at June 30, 2021, and 9.01% at September 30, 2020, with a tangible book value per share of $19.75, compared with $19.38 at June 30, 2021, and $18.01 at September 30, 2020. Reconciliations of the non-GAAP measures of tangible common equity ratio and tangible book value per share to the GAAP measures of common stockholders' equity and book value per share, respectively, are set forth at the end of this press release.

The Company implemented the CECL model on January 1, 2020 and elected to phase in the full effect of CECL on regulatory capital over the five-year transition period. At September 30, 2021, the Company had a tier 1 leverage ratio of 9.85%, common equity tier 1 capital ratio of 11.96%, tier 1 capital ratio of 11.96%, and total capital ratio of 14.56%. At September 30, 2021, the Bank had a tier 1 leverage ratio of 11.38%, common equity tier 1 capital ratio of 13.81%, tier 1 capital ratio of 13.81%, and total capital ratio of 14.61%. The decrease in total capital ratio from prior quarters was primarily driven by the redemptions of subordinated debentures during the current quarter.

The capital ratios of the Company and the Bank exceeded the “well capitalized” standards defined by the federal banking regulators of 5.00% for tier 1 leverage ratio, 6.50% for common equity tier 1 capital ratio, 8.00% for tier 1 capital ratio, and 10.00% for total capital ratio and exceeded the minimum capital ratio levels inclusive of the fully phased-in capital conservation buffer of 4.00%, 7.00%, 8.50%, and 10.50%, respectively.

Dividend and Stock Repurchase Program

On October 19, 2021, the Company's Board of Directors declared a $0.33 per share dividend, payable on November 12, 2021 to stockholders of record as of November 1, 2021. In January 2021, the Company’s Board of Directors approved a new stock repurchase program, which authorized the repurchase of up to 4,725,000 shares of its common stock. During the third quarter of 2021, the Company repurchased 280,270 shares of common stock at an average price of $39.82 per share with a total market value of $11.2 million under this program.

Conference Call and Webcast

The Company will host a conference call at 9:00 a.m. PT / 12:00 p.m. ET on October 21, 2021 to discuss its financial results. Analysts and investors may participate in the question-and-answer session. A live webcast will be available on the Webcasts page of the Company's investor relations website. An archived version of the webcast will be available in the same location shortly after the live call has ended. The conference call can be accessed by telephone at (866) 290-5977 and asking to be joined to the Pacific Premier Bancorp conference call. Additionally, a telephone replay will be made available through October 28, 2021 at (877) 344-7529, conference ID 10160294.

About Pacific Premier Bancorp, Inc.

Pacific Premier Bancorp, Inc. (Nasdaq: PPBI) is the parent company of Pacific Premier Bank, a California-based commercial bank focused on serving small, middle-market, and corporate businesses throughout the western United States in major metropolitan markets in California, Washington, Oregon, Arizona, and Nevada. Founded in 1983, Pacific Premier Bank has grown to become one of the largest banks headquartered in the western region of the United States, with $21 billion in total assets. Pacific Premier Bank provides banking products and services, including deposit accounts, digital banking, and treasury management services, to businesses, professionals, entrepreneurs, real estate investors, and nonprofit organizations. Pacific Premier Bank also offers a wide array of loan products, such as commercial business loans, lines of credit, SBA loans, commercial real estate loans, agribusiness loans, franchise lending, home equity lines of credit, and construction loans. Pacific Premier Bank offers commercial escrow services and facilitates 1031 Exchange transactions through its Commerce Escrow division. Pacific Premier Bank offers clients IRA custodial services through its Pacific Premier Trust division, which has over $17 billion of assets under custody and approximately 44,000 client accounts comprised of self-directed investors, financial institutions, capital syndicators, and financial advisors. Additionally, Pacific Premier Bank provides nationwide customized banking solutions to Homeowners’ Associations and Property Management companies. Pacific Premier Bank is an Equal Housing Lender and Member FDIC. For additional information about Pacific Premier Bancorp, Inc. and Pacific Premier Bank, visit our website: www.ppbi.com.

FORWARD-LOOKING STATEMENTS

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, stockholder value creation, tax rates, and the impact of acquisitions we have made or may make.

Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Given the ongoing and dynamic nature of the COVID-19 pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects remain uncertain. Continued deterioration in general business and economic conditions, including further increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility, which could result in impairment to our goodwill in future periods. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to the COVID-19 pandemic, could affect us in substantial and unpredictable ways, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance. Other risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; the effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, and insurance, and the application thereof by regulatory bodies; the effectiveness of our risk management framework and quantitative models; changes in the level of our nonperforming assets and charge-offs; the transition away from USD LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the CECL model, which has changed how we estimate credit losses and may further increase the required level of our allowance for credit losses in future periods; possible credit related impairments of securities held by us; possible impairment charges to goodwill; the impact of governmental efforts to restructure the U.S. financial regulatory system; changes in consumer spending, borrowing, and savings habits; the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations; our ability to attract deposits and other sources of liquidity; the possibility that we may reduce or discontinue the payments of dividends on our common stock; the possibility that we may discontinue our stock repurchase program or reduce or otherwise limit the level of repurchases of our common stock we may make from time to time pursuant to such program; changes in the financial performance and/or condition of our borrowers; changes in the competitive environment among financial and bank holding companies and other financial service providers; geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; public health crisis and pandemics, including the COVID-19 pandemic, and their effects on the economic and business environments in which we operate, including on our credit quality and business operations, as well as the impact on general economic and financial market conditions; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; unanticipated regulatory or legal proceedings; and our ability to manage the risks involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's 2020 Annual Report on Form 10-K filed with the SEC and available at the SEC’s Internet site (http://www.sec.gov).

The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.